And he conceded: “I can confirm that about 10 per cent of pensioners, and there’s two-and-a-half million pensioners, will have a minor impact.”

At issue is the current operation of a 30-year-old concession on dividends.

In 1987, the Labor government introduced dividend imputation — franking — to prevent company profits being taxed twice. The profits were taxed at source and it was considered unfair for the after-tax profits to be taxed again as income when shareholders received dividends.

In 2000, the Coalition government, with Labor support, allowed people who paid little or no tax to get a cash refund from the ATO on franked dividends.

A succession of recent reviews of the tax system have warned the growth in the refunds is draining revenue.

A 2015 Government review said: “There are some revenue concerns with the refundability of imputation credits.”

The measure had a relatively low cost to government revenue when introduced nearly 20 years ago, but now will soon cost between $6 billion and $8 billion a year.

Labor says savings from its reforms would add $59 billion to the Budget over 10 years, which could be used to ease the deficit and to fund education and health programs.

Treasurer Scott Morrison is arguing it isn’t fair to not pay the refund to retirees. Picture: Kym SmithSource:News Corp Australia

Treasurer Scott Morrison said “a fundamental principle of fairness” was at stake.

“Why is it fair for you and I to be able to hold shares in companies that have franked dividends and we can get the full value of those franked dividends to reduce our tax, but a pensioner, someone on a low income, a self-funded retiree, should not get the full value of that?” he said. “That’s just basically unfair.”

Labor’s Jenny Macklin compared the Government’s current concern for pensioners with its past treatment.